Marathon acquires additional Eagle Ford Shale assets for $3.5B

1 June 2011

Marathon Oil Corporation has reached a definitive agreement with Hilcorp Resources Holdings, LP to purchase its assets in the core of the Eagle Ford shale formation in Texas in a transaction valued at $3.5 billion subject to closing adjustments, customary terms and conditions, and Hart-Scott-Rodino approval.

Along with other transactions expected to close by the end of 2011, Marathon’s Eagle Ford acreage position is expected to more than double to 285,000 net acres. The Hilcorp transaction is expected to close 1 Nov. 2011 with an effective date of 1 May 2011.

Potential opportunity to acquire approximately 14,000 additional net acres through tag-along rights and other leasing.

Approximately 90% operated with 65% average working interest .

As of 1 May there were 36 wells producing approximately 7,000 net (17,000 gross) barrels of oil equivalent (boe) per day, of which 80% is liquids (three-fourths of which is crude oil and condensate)

10 additional wells drilled and awaiting completion.

Six rigs currently operating and two dedicated hydraulic fracturing crews.

Year-end production expected to be approximately 12,000 net boe per day.

Total net risked resource potential of 400 - 500 million boe with upside potential from additional downspacing and other stacked pay potential.

Potential to book up to 100 million boe of proved reserves by the end of 2011.

Production expected to increase to approximately 80,000 net boe per day by 2016.

Marathon has captured a top-five acreage position in the core of the premier resource play in the US since first entering the Eagle Ford in November 2010. This transaction enhances our already strong North America position focused on unconventional, liquids-rich resource plays that provide low-risk, scalable and profitable growth. This and other projects under development serve as a catalyst for Marathon to increase our projected Upstream production growth to 5–7% on a compound average annual growth rate (CAGR) during the period 2010–2016.

—Clarence P. Cazalot Jr., Marathon president and CEO

Marathon will use cash on hand and cash generated from operations to fund the transaction. With an anticipated fourth quarter closing, Marathon’s upstream capital, investment and exploration spending for 2011 (excluding acquisitions) is not anticipated to increase materially as a result of this transaction.

In addition to the six rigs currently under contract related to this acquisition and two in Marathon’s other Eagle Ford acreage, Marathon has five drilling rigs on order and expects to be operating at least 20 drilling rigs in the Eagle Ford within 12 months of closing this transaction. As a result, the Company expects to grow production from its total Eagle Ford acreage position to a peak of approximately 100,000 net boe per day by 2016.

This acquisition brings Marathon’s holdings to nearly 1 million net acres across North American liquids-rich resource plays in the Eagle Ford, North Dakota Bakken, Oklahoma Anadarko Woodford, the emerging Niobrara in Colorado and Wyoming, and an in-situ position in Alberta Canada—with plans to continue to grow acreage and increase drilling activity in each of the US basins.

Within 12 months of closing this transaction, Marathon expects to be operating 35–40 rigs across the US. This drilling activity, along with a potential phased development of its Birchwood in-situ acreage, provides a defined growth trajectory to achieve production from its unconventional portfolio of approximately 175,000 net boe per day in the 2016–2017 timeframe.

The legal advisor to Marathon for this transaction is Baker Botts and the financial advisor is Barclays Capital. The legal advisor to Hilcorp Energy for this transaction is Andrews Kurth LLP and the legal advisor to KKR is Simpson, Thacher & Bartlett, LLP. Jefferies & Company, Inc. served as exclusive financial advisor to Hilcorp Resources Holdings for this transaction.

Comments

There was a really good piece in New York Times on this topic, oil drilling in shale formations. Apparently the newest development in horizontal fracking drilling technology has made oil drilling possible and profitable in hard shale rock and this is creating a new oil fever almost comparable in size to that caused by natural gas drilling in shale rock. It is profitable when oil is above 60 USD per barrel and there are potentially much larger reserves in oil shale than there is in conventional crude oil reserves in the US. Also new production can be brought online much faster than possible at deep water and arctic oil drilling where it can take 5 to 8 years from first investment to first oil flow.

America will be far better off in many ways by employing a million or so in the coming years to drill shale oil and shale gas. America could drop coal and oil sands and also drop importing oil from other countries. That would be better for the environment, the economy and for the defense. With profitability at anything over 60 USD per barrel it is “drill baby drill”.

Still, I am convinced that oil and gas will be out of business in 50 years, or so, because renewables by that time will be the least costly forms of energy that are available. So I see no need to wait with shale oil and shale gas. Just drill as fast as possible.

I agree that when controlled Fusion does become practical, in a decade or three, energy problems essentially evaporate into the fevered imaginings of enviro-cranks. Long before then, in only a few more years, North America will be essentially Pollution free, with pristine Air and clean Rivers, as we near those erstwile goals after 40 years of cleanup efforts. It is American exceptionalism at work, while others merely talk a good story, like the phony Europeans.

I liked your report on Petroleum fracking, but you neglected to report what the USGS has projected for the now recoverable amounts of Oil in the Williston and Bakken formation alone.

It is truly gargantuan. The USGS has just issued a report to the Congress, that upgrades its previous 1995 Bakken report enormously, and rates the now recoverablee with current technology, oil reserves, as some 8 times the Oil ever existing in Saudi Arabia.

The Bakken formation alone can supply all the Oil America uses today, some 20 million bbls/day, and slowly declining, for the short time of only 2,041 years! Similarly the uncounted Eagle-Ford basin in Texas will prove to be a semi-gargantuan field too, restoring Texas to a prominent position as a Oil producing location.

Do not count on fusion, act as if it will never arrive and plan accordingly. If it does arrive, then all the better, but do not count on it, you will be sadly disappointed and left stranded with no plans at all.

Fusion is still a very long-term R&D project and the most difficult and expensive than man has ever sought. I think it will not be until the next century before the first large-scale commercial fusion reactor is build. For the next 30 years it is still fossils that will rule, then it will be renewables and finally fusion energy.

A plan for making USA independent of oil imports could be like follows:

Status is the US produces 7.801 million barrels per day of crude oil and petroleum products and 0.95 million barrels of renewable fuels (ethanol and biodiesel). That is a total of 8.75 million per day and the US consumes 19.25 million barrels per day.

In other words, you need to find 19.25-8.75 =10.5 to make the US independent of oil imports.

3 million bpd: By increasing fuel economy by 30% for all gasoline vehicles that currently consume about 10 million bpd in the US.
2 million bpd: By switching long-haul heavy duty trucks from diesel to natural gas (CNG or LNG). 60 billion gallons of diesel per year is used in the US and about half is for these trucks.
1 million bpd: By switching commercial ships from bunker oil to LNG.
0.5 million bpd: By increased corn ethanol production.
1.5 million bpd: By cellulosic ethanol production.
1 million bpd: By liquids that result as a byproduct from increased US natural gas production that need to almost double to replace coal and partially substitute for oil in shipping and trucking.
1.5 million bpd: By more oil drilling such as shale oil and deepwater oil.

Added it equals the 10.5 barrels per day that is needed for oil independence.

Confirmation of my numbers for US oil production and consumption can be found at http://www.eia.gov/

Good plan, but how do you make it work in a "free market economy"? Are all the ships voluntarily going to switch to LNG, or is the big bad government going to have to make them do it? Washington D.C. is so grid locked with political hot air, it will never get off the dime.

The market could do many of these suggestions by its own because there is an incentive to do so from the price movement of the involved products. However, with government intervention it would happen much faster.

For example, higher gasoline prices will eventually make gasoline vehicles more efficient but with CAFÉ legislation it will happen faster. Also the switch to natural gas from diesel in heavy duty vehicles will happen much faster if gas-stations could get subsidized building the needed natural gas fueling pumps. Same with shipping. The ports need fueling facilities before the ships will switch to natural gas. To begin with ports will lose money investing in such facilities because there are not enough ships that run on natural gas and therefore to speed things up the ports needs to get some help to build that infrastructure. More ethanol production will also benefit from a government mandate that new gasoline vehicles are made to be flex-fuel. The 1 million extra barrels per day in liquids derived from more natural gas production will come by its own because natural gas is now an inexpensive fuel in demand but again a government moratorium against building new coal power plants or even life extending existing coal power plants will speed up the shift to combined cycle natural gas power plants and thus the production growth for natural gas.

Trucks could convert to natural gas/diesel dual fuel, it would save them money and pay back the conversion in a few years, but almost NO one is doing it. There is plenty of incentive there to save money on fuel, even if they do not care about the air and imported oil, but NO one is doing it.

It will come but only after a much larger number of natural gas stations are in operation and fleet operators can buy OEM solutions and not just aftermarket conversion kits that are low quality and high price. More decision makes also need to be convinced that natural gas prices do not shoot up again and that diesel prices won’t fall back. A few more years with low natural gas prices and high diesel prices will solve that problem.